Co integration, Dynamic Linkage and Portfolio Diversification from Selected Stock Market in Africa.
Journal Title: IOSR Journal of Economics and Finance (IOSR-JEF) - Year 2018, Vol 9, Issue 4
Abstract
The recent trends in globalization, financial liberalization and financial innovation have raised questions with regard to the dynamic linkages and integration of selected African stock markets. This study examines the cointegration, dynamic linkage and portfolio diversification in African stock market over the period of 01/02/2004-01/07/2016. Using Johansen cointegration, Vector autoregressive (VAR) and Multivariate GARCH approach. Sixselected equity markets are used to form four portfolios in line with portfolio theory. The result show that no bivariate cointegration exists between the Nigeria and any of the stockmarkets being studied, and the multivariate cointegration confirms the result. Even though we control for the influence of FTSE100 and NYSE, Nigeria Allshare index still has no cointergration with the other market. The findings on dynamic return linkages is that there isno significant returns linkages among the markets, with the exception to UK. Indeed FTSE100 is the most exogenous. Findings regarding volatility are that the volatility in all the markets is inherently asymmetric and there is presence of high volatility in the Nigerian market from 2015 to date. Therefore, all markets are not exposed to the same set of risk factors and the risk premia on each factor varies among all markets. The finding of this study have important implications for policymakers. The nonexistence of a cointegrating relationship between the Nigerian market and the considered stock markets implies that these markets offer potential for pairwise portfolio diversification for a Nigerian portfolio manager
Authors and Affiliations
Ben Ogbonna, ugene Iheanacho, kingsley Okere
Keywords
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- EP ID EP414866
- DOI 10.9790/5933-0904012137.
- Views 202
- Downloads 0
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